Hong Kong Stocks Pare Gain as Mainland Investors Turn Sellers

(Bloomberg) -- Hong Kong stocks pared gains after the city’s benchmark index briefly rose above 24,000 and mainland investors turned sellers for the first time in seven weeks. Financial companies fell, while higher crude boosted energy producers.

The Hang Seng Index added 0.4 percent at the close, after climbing as much as 1.6 percent. Bank of China Ltd. slid 1.1 percent, while Sands China Ltd. dropped for a third time this week. Net selling via an exchange link with Shanghai amounted to about 132 million yuan ($20 million), the first outflow from Hong Kong since Aug. 1, compared with purchases of 3.8 billion yuan Wednesday. China Shenhua Energy Co. and China Petroleum & Chemical Corp. rallied at least 1.7 percent. The Shanghai Composite Index added 0.5 percent at the close.

Hong Kong’s benchmark stock gauge has surged 14 percent this quarter, poised for its best gain since 2009, on bets global central banks will remain accommodative and as higher yields and lower valuations drew mainland investors to the city’s equities. The Hang Seng Index rallied earlier after the Federal Reserve left borrowing costs unchanged on Wednesday and scaled back the number of hikes they expect for next year and beyond.

“The market is using the Fed news to take profit as the pressure for a correction is building up after a decent rally,” said Wang Chen, a partner at Xufunds Investment Management Co. in Shanghai. “I would be cautious about buying Hong Kong stocks at this level and it may take a while for the market to consolidate around this range. That’s probably why southbound buying through the link is slowing now.”

The Hang Seng Index climbed to 23,759.80 while the Hang Seng China Enterprises Index gained 0.5 percent.

A gauge of property stocks in Hong Kong advanced 1 percent. Cheung Kong Property Holdings Ltd. and Hang Lung Properties Ltd. added at least 1.5 percent. Bets the Fed will be slow to raise interest rates has helped Hong Kong home prices rebound this quarter after slumping as much as 13 percent between September and March.

China Shenhua, the nation’s biggest coal producer, advanced to the highest level in a year in Hong Kong. Mines owned by Shenhua Group may raise coal output by as much as 2.79 million metric tons this month, according to people with direct knowledge of the matter. Sinopec advanced 1.7 percent. Crude oil gained 1 percent to a one-week high.

Sands China and Wynn Macau Ltd. fell 1.6 percent each. Both stocks are still up at least 21 percent this quarter.

“The rally in Hong Kong stocks still has way to go as valuations and dividend yields are more attractive than mainland stocks,” said Wei Wei, an analyst at Huaxi Securities Co. in Shanghai. “What may halt the rally is when U.S. really does raise rates this year and the market’s valuations get close to those of mainland stocks.”

Dual-listed equities are 20 percent more expensive on the mainland than in Hong Kong, though that gap has narrowed as so-called H shares outperformed yuan-denominated A shares. While the Hang Seng China AH Premium index rose 0.5 percent on Thursday, it still trades near its lowest level since December 2014. Hong Kong’s benchmark gauge offers a dividend yield of 3.5 percent, compared with 1.9 percent on the Shanghai Composite.

To contact Bloomberg News staff for this story: Zhang Shidong in Shanghai at szhang5@bloomberg.net. To contact the editors responsible for this story: Richard Frost at rfrost4@bloomberg.net, Phani Varahabhotla, Sarah McDonald

With assistance from Zhang Shidong